Current laws across the U.S. prevent car companies from selling cars directly to the public. Instead the laws are formulated to require independent car dealerships, each of which must have a used car lot and car service center and other requirements that end up with the modern car dealership as it stands today. Supposedly the laws are in place to protect customers, because a car manufacturer that’s completely in control of the car buying and service process could perpetrate evil.
Tesla Motors is currently selling cars direct to the public, without working through independent dealerships. Currently Tesla is operating itself as a paragon of virtue and going the extra mile to provide hugely satisfactory service to the customers. This is clearly winning lots of goodwill, but as I asked a couple weeks ago when Tesla scales up to selling a million cars a year will they be tempted to begin perpetrating Evil?
In any case what occurred to me earlier today is that there are plenty of markets where expensive products are sold direct by the manufacturer, AND are also available through independent dealerships. We already have existing businesses and practices to study and see what the market might be like if car companies were allowed to sell cars directly to the public in America.
Apple is a great example – go to store.apple.com and you can browse Apple’s full product line. Or you can go to an Apple Store, and buy stuff in the store. Or you can go to independent Apple dealers, either on-line or in brick-and-mortar stores, and buy stuff there. You can get service either through Apple, or through independent shops, or if you’re brave you can service the gizmo’s yourself and there are plenty of sites selling tools and offering how-to videos.
Most of the car companies are, today, offering a similar experience on their websites to the experience on store.apple.com. On the car company website you can browse product information, and even Build a prospective car and get quite a ways down the process of selecting the car you want to own. But, the websites do not let you make the actual purchase. Instead, the website directs you to a local dealership who will be the actual seller. Again, the law prevents the car company from closing the sale directly.
The following are screen captures of the process on chevy.com for choosing a Chevy Volt. The user experience is very similar to sites like store.apple.com – you’re wading through various options, and as you adjust them the price changes up or down. The goal is to come to a final price, just like on store.apple.com. The divergence is in the final step, and instead of typing in a credit card number you’re given a list of dealerships.
Of course, at the dealership you’ll have to go through the whole process all over, because the exact car you want might not be on their lot.
The car companies are currently free to perform every step of the sales process, except the last. Is it that much of a stretch for them to then perform the actual sale?
Arranging financing: Dealers can help you finance a car purchase, and there’s no reason a car maker couldn’t do the same. Some already have large financing arms (GMAC comes to mind) already.
Test drives: Currently the car makers don’t have their own show-rooms, of course. The test drive is an important part of choosing which car to buy, right? For the car makers to replace dealers they’d have to develop their own show-rooms. Just like Tesla Motors is doing.
Performing delivery: Currently delivery is done at a dealership, so again the car makers would have to replicate this step somehow. Tesla Motors does delivery by loading the car on a truck and driving it to the customers home. Maybe the car makers could do the same?
Haggling over price: Here’s a down-side to car makers selling directly, because even if the
manufacturer has multiple show-rooms in a city there’s no incentive to
offer different prices at different locations. Today, car buyer scan play one dealer against another to get better prices.
Used car sales: While there are plenty of used car dealers to handle the used car market, what will the car maker do in cases where the buyer wants to trade-in their current car? Tesla sells those cars to
used car dealers, so that Tesla can concentrate on selling the Model S. The other car makers might decide to do the same.
Warranty support & Service: Maybe the car makers would, as Tesla is doing, establish their own service shops for warranty service. Or maybe they’d certify 3rd party shops for service. Open access to service is one risk when car makers sell cars directly, because all car owners are safer when they can openly choose between car repair shops. Tesla is keeping in control of the repair business, and isn’t certifying 3rd party repair shops.
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